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Colgate (CL) Q4 Earnings In Line, Revenues Lag; Stock Down

Colgate-Palmolive Co.CL posted in-line earnings in fourth-quarter 2016, maintaining its trend of beating and meeting estimates in alternate quarters for the sixth straight time. However, the top line, which has declined for over a couple of years now, marked its third consecutive miss in the reported quarter. This caused shares of the company to slip 5.5% in the pre-market trading session.

Moreover, Colgate's shares have declined 6.9% in the last six months, underperforming the Zacks categorized Soap & Cleaning Preparations industry's fall of 2.4% in the same time frame.

Quarterly adjusted earnings of 75 cents a share came in line with the Zacks Consensus Estimate and improved about 2.7% year over year from 73 cents earned in the prior-year quarter. On a currency-neutral basis, adjusted earnings were up in the high-single digit range. Including one-time items, the company posted earnings of 68 cents per share, compared with a loss per share of 51 cents in the year-ago quarter.

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Deeper Insight

Total sales of $3,721 million declined 4.5% year over year and also missed the Zacks Consensus Estimate of $3,844 million. The benefits of 2.5% increase in prices were more than offset by a negative impact of 1.5% from currency fluctuations and 5.5% drop in global unit volumes. Excluding the effects of the previously announced deconsolidation of its Venezuelan operations, unit volumes dipped 1%.

On an organic basis (excluding foreign exchange, acquisitions, divestitures and the deconsolidated Venezuelan operations), the company recorded sales growth of 1.5% on the back of 4.5% growth in organic sales in emerging markets despite tough economic conditions.

Adjusted gross profit margin was 60.8%, up 180 basis points (bps), backed by benefits of cost-saving initiatives under the company's funding-the-growth and 2012 Restructuring Program, along with better pricing. These were partly neutralized by increased packaging and material expenses stemming from higher currency translation costs and the effect of deconsolidation of the Venezuelan operations.

In the reported quarter, adjusted operating profit of $1,038 million increased 2%, with the adjusted operating margin improving 190 bps to 27.9% on enhanced gross margin, partly offset by a 40 bps increase in adjusted selling, general & administrative expenses as a percentage of revenues.

On a year-to-date basis, Colgate's market share of manual toothbrushes reached 33.1%. Further, the company continued to lead with market share in the global toothpaste with a gain of 44%.

Full-Year 2016 Synopsis

For 2013, the company's adjusted earnings came at $2.81 per share, flat year over year and in line with the Zacks Consensus Estimate. Revenues for the year dropped 5% to $15,195 million and missed the Zacks Consensus Estimate of $15,340 million.

Q4 Segment Discussion

North America sales (21% of total sales) and organic sales were flat with fourth-quarter 2015, due to flat unit volumes, pricing and effects of foreign exchange.

Latin America sales (24% of total sales) slumped 10.5% year over year as the benefits of 9% increase in pricing were more than offset by 16.5% plunge in unit volumes and negative impact of 3% from foreign exchange. Excluding the deconsolidation of Venezuelan operations' impact, unit volumes inched up 1.5%, driven by gains in Mexico. On an organic basis, sales rose 10.5%.

Europe (16% of total sales) sales slipped 7.5% year over year, owing to 2% decline in unit volumes, 1.5% lower pricing and 4% impact from currency translations. Unit volumes gains in the U.K. were more than offset by declines in France. Europe organic sales dipped 3.5%.

Asia Pacific sales (18% of total sales) declined 4%, attributable to a 2% negative impact currency headwinds and 2% fall in prices. Unit volumes remained flat year over year as volume declines in India due to demonetization, negated by growth in Philippines and Greater China. On an organic basis, sales declined 2%.

Africa/Eurasia sales (6% of total sales) fell 1.5% year over year, fueled by a 10% jump in pricing and positive currency effects of 0.5%, neutralized by 12% drop in unit volumes. Soft volumes at South Africa and the Sub Saharan Africa region were partially compensated by gains in the North Africa/Middle East region. Organic sales for Africa/Eurasia declined 2%.

Hill's Pet Nutrition sales (15% of total sales) inched up 0.5% year over year. During the quarter, positive impact from 2.5% increase in pricing and 0.5% gain from foreign exchange was somewhat offset by 2.5% drop in unit volume. Unit volume declines in the U.S., Western Europe and Japan could not be compensated by benefits realized in the rest of Asia, Russia, Latin America and South Africa. On an organic basis, sales were flat with the prior-year quarter.

Other Financial Details

Colgate ended the year with cash and cash equivalents of $1,315 million, total debt of $6,533 million, and shareholders' equity (excluding non-controlling interests) of ($243) million.

Net cash provided by operating activities came in at $3,141 million for full-year 2016.

Outlook

Going into 2017, Colgate anticipates the backdrop to remain challenging due to the uncertain global markets and lingering currency headwinds. Hence, it expects net sales for 2017 to improve in low-single digits range. However, the company expects organic sales growth to remain solid backed by its full new product pipeline, appealing marketing programs and strong advertising support.

Excluding charges related to the 2012 Restructuring Program and the other 2016 one-time items, Colgate envisions 2017 earnings per share on a dollar-basis to be about low-single-digits. Further, the company expects strong operating cash flows, gross margin expansion and rise in advertising investment in 2017.

On a GAAP basis, the company anticipates earnings per share on a dollar basis to be flat with 2016, with gross margins expected to expand year over year.

Colgate-Palmolive Company Price, Consensus and EPS Surprise

Colgate-Palmolive Company Price, Consensus and EPS Surprise | Colgate-Palmolive Company Quote

Zacks Rank & Key Picks

Colgate currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the same industry is Unilever Plc UL , which carries a Zacks Rank #2 (Buy). Other stocks worth considering in the consumer staples sector include Ollie's Bargain Outlet Holdings Inc. OLLI and Blue Buffalo Pet Products Inc. BUFF , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Unilever, with a long-term EPS growth rate of 5.8%, has witnessed positive estimate revisions in the last seven days and have a VGM Style Score of "A".

Ollie's Bargain has to its credit a spectacular earnings history as the company delivered an average positive earnings surprise of 17.6% in the past four quarters. Moreover, its long-term EPS growth rate of 18.9% and positive estimate revisions in the past 30 days help it stand strong against the industry.

Blue Buffalo, with a long-term EPS growth rate of 14%, flaunts a solid earnings history having delivered an average positive surprise of 10.4 in the trailing four quarters.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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